MALAYSIA'S MOVE TOWARDS

A HIGH INCOME ECONOMY

1st MAY 2014

KUWAIT CITY, KUWAIT

Dr Ahmad Tajuddin Ali

MALAYSIA: TODAY

Total population 2013:

29,974,054

54% are middle class US$ 10,687

Per capita income

(as of 2013)

Agriculture

Manufacturing

Non-manufacturing

industry

Services

Structure of the economy Oil & Gas sector

contributions:

MALAYSIA

20% of GDP

35% Government

revenue

MALAYSIA: TODAY

MALAYSIA

Global Competitiveness

Index (GCI) 2013-2014

Malaysia

ranked: 24th

The Ease of Doing

Business 2013

Malaysia

ranked: 6th

Global Innovation Index

(GII) 2013

Malaysia

ranked: 32nd

Quality of Infrastructure

2012-2013

Malaysia

ranked: 29th

FROM THE EARLY DAYS

Agriculture Based Economy

Resource-Led Economy

Innovation-Led Economy

1957 to late 1970s

1980s to mid 1990s

Late 1990s to 2020

Basic Input Factors Land Labour

Basic Input Factors Infrastructure Collateralized risk-

free capital Labour

Critical Success Factors Technology Market Funding (risk capital)

Rewards are rapid and sustainable:

• Wealth creation

• Employment creation

• Societal well being

Malaysia has achieved sustained economic growth with low inflation and

low rate of unemployment

%

High growth with low

inflation Sustainable growth with low inflation

1980 - 1985

Recession with high

inflation in 1985

Source: Department of Statistics, Malaysia

1997 - 1999 1986 - 1996 2000 - 2013

• Real GDP: -1.2% in

1985

•Unemployment

rate: 5-6%

• Rapid industrialisation

•Higher inflation of 4.6%

in 1991-92

• Large inflows of ST capital

in 1994-95

Financial

crisis in

1998

Significant structural shift in the economy in the 3 decades

From manufacturing-dependent to services-driven economy

Source: Department Of Statistics, Malaysia

From an asset perspective, 20% of Malaysia’s wealth is in natural capital

Malaysia's wealth composition*

Intangible Capital

Net Foreign Assets

Produced Capital

Natural Capital -1.2%

56% 26%

20%

80%

17%

59% 20%

21%

Middle Incom e

Count r ies

Average wealth

composition of a

high income nation*

Average wealth

composition of a

middle income nation*

* LATEST AVAILABLE WEALTH DATA IS IN 2005 Source: World Bank

3%

THE CHALLENGES

Availability of resources and infrastructure

Technology know-how

Commodity prices

Rising environmental concerns

PRESERVING COMPETITIVENESS

Malaysian competitiveness has been preserved by the following factors:

Source: Bank Negara Malaysia

• Malaysia was one of the very few resource-rich nations that invested more than the resource wealth extracted

Intergenerational equity

• Horizontal shift from primary sectors to manufacturing

• Vertical shift from upstream (raw) to downstream rubber and oil&gas

• Ensuring strong backward and forward linkage for commodities

Successful horizontal and vertical diversification of economy

• Lower inflation compared to its peers (CAGR: +2.3%) *

• Productivity growth (+3.2%^) exceed wage growth (+2.7%^)

Inflation and wage pressures contained

Note:

• Refers to period between 2002 – 1Q 2013

• ^ CAGR, refers to period between 2001 – 1Q 2013

Successful recycling of resource rent toward capital spending and less

for consumption

Spending on capital expenditure was high, financed by the resource rent from PETRONAS

Source: CEIC, World Bank staff calculations

Successful horizontal and vertical diversification of the economy away

from commodities

Vertical diversification towards higher value-

added products

Horizontal diversification towards other source of

growth

Primary Manufacturing Services

33.1

15.7 17.2

24.9

43.1

54.6

1980 2012

Share of GDP (%)

Primary

commodities Resource-based

Manufacturing

E&E

77.2

24.2 5.4 23.3

10.7

36.5

1980 2012

Share of exports (%)

Source: Economic Planning Unit and

Department of Statistics, Malaysia

Source: Department of Statistics, Malaysia

Inflation and wage pressures were contained

Inflation rates have been low compared to

peers

100

125

150

1/2

002

1/2

003

1/2

004

1/2

005

1/2

006

1/2

007

1/2

008

1/2

009

1/2

010

1/2

011

1/2

012

1/2

013

Wage growth in manufacturing has been relatively

stable, and lower than productivity growth

Index 1Q 2001=100

CAGR

Productivity: 3.2%

Wages: 2.7%

175 Malaysia - Overall China - Overall Korea - Overall Singapore - Overall Thailand - Overall Philippines - Overall

Source: Department of Statistics, Malaysia, CEIC & BNM staff calculations

PREREQUISITE FOR DEVELOPMENT

SUSTAINED GROWTH Legal framework

Policy & regulations Strong governance TECHNOLOGY

Visionary leadership CAPABILITY Foresight Education & Training

Political stability

Abundance of natural resources Political Stability TRANSPORTATION & LOGISTIC

Connectivity & Communication

Sound planning mechanism Incentives & Funding INFRASTRUCTURE

FORESIGHT & FUTURES THINKING New industries

Investment opportunities POLITICAL & SOCIAL STABILITY

HOW DID WE GET TO WHERE WE ARE?

Development Plans

Infrastructure development

STI Integration

DEVELOPMENT PLANS

Malaysia Plan (every 5 years)

IMP3 IMP2 IMP1 Industry

S&T ST2 TAP ST1 NPSTI

1957 ‘70 ‘90 ‘85 ‘80 ‘75 ‘10 ‘05 2000 ‘95 ‘15 2020

National Agenda

10th MP ( 2011 – 2015) 1st Malaysia Plan (1966 – 1970)

VISION 2020

The Green Book Programme

LOOKING AHEAD

VISION 2020

Government

Transformation

Programme (GTP)

1 Malaysia

People First,

Performance now 6 National Key Result

Areas (NKRAs)

Economic Transformation

Programme (ETP)

8 Strategic Reform

Initiatives (SRIs)

10th Malaysia Plan

Macroeconomic growth

targets & expenditure

allocation

Preservation and

enhancement of unity in

diversity

Smooth implementation of

government’s

development programme

New Economic Model – A

high income, inclusive and

sustainable nation

Effective delivery of

government services

Science & Technology Support

NATIONAL TRANSFORMATION PROGRAMMES

ENTRY POINT

PROJECTS 133

NKEAS 12

Oil, gas &

Energy

Palm

Oil

Financial

Services

Tourism

Business

Services

Electronics &

Electrical

Wholesale & Retail Education

Healthcare Communications, Content

& Infrastructure

Agriculture Greater Kuala

Lumpur

Reducing Crime

Fighting Corruption

Improving Students

Outcomes

Raising Living Standards of

Low-Income Households

Improving Rural Basic

Infrastructure

Improving Urban Public

Transport

NKRA 6

INFRASTRUCTURE DEVELOPMENT

Ports International

Airports

5 31

> 20,000

jobs

1.92 mil

jobs

662,065

jobs

900,000

jobs

817,500

jobs

5

Economic

Corridors

industrial estates

and Free Zones

500

STRENGTHENING RESOURCES

Cybercities/

Cybercentres

Public universities 21

>20

90% of the workforce is

under 30 years of age

STI INTEGRATION

To streamline and monitor STI projects, policies &

achievements towards sustainable growth beyond

2020

GSIAC is set-up to be a sounding board in

Malaysia's effort to improve and optimize it's

national capabilities in the field of Science &

Innovation

To pursue, encourage and enhance excellence in

the fields of Science, Engineering and Technology,

for the development of the nation and the benefit

of mankind

THE NATIONAL POLICY ON STI

NPSTI

2013 – 2020

HARNESSING STI FOR SOCIO-

ECONOMIC TRANSFORMATION AND

INCLUSIVE GROWTH

• Takes stock of the successes,

challenges, lessons learnt and

prospects of STI development at

national and international levels

• Sets out a new and focused

approach to harness the full

potential of STI to achieve the

nation’s goals

• Represents the nation’s

commitment towards revitalising

the national STI ecosystem

• Positions Malaysia to become a

scientifically advanced nation for

socio-economic transformation and

inclusive growth by 2020.

ST 1: Advancing Scientific and Social

Research, Development and

Commercialisation

ST 2: Developing, Harnessing and

Intensifying Talent

ST 3: Energising Industries

ST 4: Transforming STI governance

ST 5: Promoting and sensitising STI

ST 6: Enhancing strategic

international alliances

6 STRATEGIC THRUSTS

Improvement in technological

readiness and higher education

parameters are utmost important to

boost Malaysia’s ranking in the global

competitive index

ISSUES & CHALLENGES

Source: World Economic Forum; Global Competitive Report 2013-2014

Education is significant factor in the development of children, communities

and countries

ISSUES & CHALLENGES

Targets:

*Wave 2 (2016-2020) where Malaysia’s

performance will be at par with the

international average of PISA and TIMSS

benchmarks; and

*Wave 3 (2021-2025) where Malaysia’s

performance on PISA and TIMSS will be in the

top third of PISA and TIMSS assessments.

Our current standing Our targets

Thank you